“When the market fell, we went into UBS and Citi. But we went in too early. That is part of the ride,” he told a forum of bankers sponsored by Thomson Reuters. GIC made the banking investments at the turn of 2008.

Temasek Holdings, GIC’s smaller sister Singapore sovereign fund, suffered a 31 per cent fall in the value of its assets to $127bn between April and November 2008, a senior finance ministry told parliament last month.

However, GIC takes a more conservative approach than Temasek in its investment strategy, said Mr Lee, who was prime minister of Singapore from 1959 to 1990. GIC invests Singapore’s foreign reserves in a variety of overseas assets, including equities, bonds, property and alternative instruments, in contrast to Temasek, which mainly holds stakes in domestic and foreign companies and banks, including Bank of America and Barclays.

GIC, which was estimated by analysts in late 2007 to have had an asset value of $300bn, earlier cut the equity position in its portfolio from 60 per cent to about 45 per cent in anticipation of a downturn in the global economy, Mr Lee said.

GIC last week converted its preferred shares in Citi into common stock, becoming the second largest shareholder in the US bank with a 11.1 per cent stake. The fund continues to view financials as a long-term investment because they are “the circulation system of the world”, Mr Lee said.

Mr Lee predicted that China might increase investments in US assets, including property and natural resources, even if it decided to reduce holdings of US treasuries. China and the US have a “mutually reinforced dependency”, since the health of the Chinese economy was dependent on the US as its main export market.

Singapore’s economy might contract by up to 8 per cent this year because of its exposure to the global economy, he added. But Mr Lee said Singapore was likely to become one of the first economies to recover when the global economy bounces back.

Monday, 2 March 2009

James Thomson

Investment guru Warren Buffett has used his annual letter to shareholders of his investment company Berkshire Hathaway to confess he made several investment blunders in the last 12 months after Berkshire reported its worst-ever profit result.

The letter, which is closely read by investors who follow Buffett’s legendary business philosophies, contains the usual mix of economic commentary, market analysis and home-spun wisdom.

Not surprisingly, the theme of this year’s letter was the global financial crisis, which resulted in Berkshire Hathaway posting a 62% drop in net profit to $US4.99 billion in 2008, compared with $US13.21 billion in 2007.

“By year end, investors of all stripes were bloodied and confused, much as if they were small birds that had strayed into a badminton game.”

Buffett admits he did some “dumb things” in investments during 2008.

“I made at least one major mistake of commission and several lesser ones that also hurt. Furthermore, I made some errors of omission, sucking my thumb when new facts came in that should have caused me to re-examine my thinking and promptly take action.”

The error that stands out is Buffett’s investment in oil producer Conoco-Phillips when oil prices neared their peak in the middle of last year. Since then, oil prices have fallen sharply and Conoco’s share price has tumbled.

Buffett says is other blunder was buying stakes in two Irish banks.

“We spent $US244 million for shares of two Irish banks that appeared cheap to me. At year end we wrote these holdings down to market: $US27 million, for an 89% loss. Since then, the two stocks have declined even further. The tennis crowd would call my mistakes ‘unforced errors’.”

Buffett also uses the letter to:

Attack the use of derivatives. He describes them as dangerous and says they “have dramatically increased the leverage and risks in our financial system” and “made it almost impossible for investors to understand and analyse our largest commercial banks and investment banks”.

Outline a solution for the housing crisis. “Home purchases should involve an honest-to-god downpayment of at least 10% and monthly payments that can be comfortably handled by the borrower’s income. That income should be carefully verified.”

Praise the US Government’s actions to stabalise the economy in late 2008, but warned more organisations will be looking for Government support in the coming months. “Major industries have become dependent on federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.”

Buffett says the US economy “will be in shambles throughout 2009 – and, for that matter, probably well beyond” but he has sounded a positive note, pointing out that the US economy has survived two world wars, the Great Depression and a number of recessions in the past century.

“Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.”